MBIA, struggling to preserve the top-level credit ratings it needs to operate normally, said on Thursday its industry should insure municipal bonds as a separate business from insuring riskier corporate and asset-backed debt.
MBIA also left its trade group, the Association of Financial Guaranty Insurers (AFGI), after a 22-year association, citing disagreement over the proper direction for the industry.
"The industry must over time separate its business of insuring municipal bonds from the often riskier business of guaranteeing other types of securities, such as those linked to mortgages," Joseph "Jay" Brown, who this week replaced the ousted Gary Dunton as chief executive, said in a statement.
Bond insurers should also stop covering credit default swaps, Brown said. These are contracts that shift default risk between two investors, or allow investors to bet on the direction of credit markets.
Sean McCarthy, chairman of the trade group, said he was "surprised" at MBIA's departure. He said the group has not told members how they should be organized or operate, and that they are permitted to insure products such as credit default swaps.
"AFGI remains committed to supporting the industry and its members who offer credit enhanced products in the municipal and asset-backed markets," he said.
Armonk, New York-based MBIA needs to preserve its "triple-A" credit ratings to keep winning new business, as losses have mounted from its coverage of complex debt tied to subprime mortgages.
Much of this debt has lost value since mid-2007 as credit markets tightened, and in many cases shut down. MBIA lost $2.3 billion in the fourth quarter, and its shares have fallen 83 percent in the last year.
Moody's Investors Service and Standard & Poor's have said they may cut the triple-A ratings now enjoyed by MBIA and its largest rival, Ambac Financial Group .
CNBC has learned that a decision from the ratings agencies is imminent and could be made as soon as Friday.
Another bond insurer, Financial Guaranty Insurance Co., has told New York regulators it wants to split into two companies. FGIC's owners include private equity firm Blackstone Group.
Brown ran MBIA from 1999 to 2004. He returned to the company after Dunton was ousted on Saturday.
"It is up to us to shape our future in a way that we believe is most responsive to the markets, our policyholders and our owners," Brown said, "We must do so without the constraints of participation in an industry association that does not always share our views."
Earnings Estimates Cut
As the bond insurers continue to deal with the ongoing situation, Deutsche Bank cut its earnings estimates for MBIA, citing the company's recent capital raising efforts and their effect on earnings.
Analyst Darin Arita cut MBIA's 2008 earnings-per-share estimate to $1.63 from $1.83 and the 2009 estimate to $1.57 per share from $1.70.
Earlier this month, MBIA completed the sale of 94.6 million shares of common stock at $12.15 per share, brining total shares outstanding to about 236.2 million, further diluting overall share count, Arita wrote in a research note. The stock sale raised about $1.15 billion.
Arita's previous earnings estimates accounted for a capital raise from the stock offering of only about $500 million.
MBIA has raised more than $2.65 billion since December to ensure it would have enough spare cash to cover a potential spike in claims and maintain its critical "AAA" credit rating. The rating is essential to it booking new business.
Arita reiterated a "Hold" rating for MBIA.
--Reuters and The Associated Press contributed to this story.